A jumbo loan operates similarly to a traditional mortgage but has stricter credit requirements compared to a conventional loan. Jumbo lenders are still required to adhere to qualified mortgage guidelines established by the Consumer Financial Protection Bureau (CFPB).
Borrowers are typically recommended to maintain a debt-to-income (DTI) ratio of 43% or lower. Some lenders may prefer a DTI of around 36%, as it can provide more loan options and more favorable terms. Additionally, while conventional lenders generally require a minimum credit score of 620, most jumbo lenders expect a credit score of 700 or higher.
When applying for a larger loan, lenders will require more documentation to ensure you can afford the monthly mortgage payment. This includes providing at least two years of W-2s and tax returns, as well as recent bank and investment statements.
To be eligible, the borrower must be able to show evidence of having enough cash reserves or liquid assets to cover mortgage payments for a year. Lenders also require documentation of any non-liquid assets, such as additional real estate holdings.
The down payment requirements for jumbo loans can vary, with lenders typically asking for 10% to 15% down payment. However, some lenders may require 20% or more. It is important to note that if you put down less than 20%, you will also have to pay for private mortgage insurance (PMI) as part of your monthly mortgage payment.